Water Industry Commission for Scotland

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The Water Industry Commission for Scotland (WICS) is the economic regulator of water in Scotland. It is a non-departmental public body appointed by the Scottish Executive The WICS is made up of a Chief Executive, Alan Sutherland, a Chairman, Sir Ian Byatt and four other members. The remit of the WICS is to set budgets for Scottish Water to deliver the Ministerial Objectives. Their statutory duty is to ensure lowest financial cost for the customers of Scottish Water, whilst still ensuring that the Ministerial Objectives set for Scottish Water, by Scottish Executive Ministers, are achieved. This is a balancing act that places on them a great deal of influence. Their influence can, and indeed has, led to tensions between different actors within the sector of water in Scotland.

Background

In 1999 the post of the Water Industry Commissioner (WIC) was created. Alan Sutherland was appointed and his role was to advise the Scottish Executive on charges that the Water authorities could/should set for their customers. After the Water Industry (Scotland) Act (2002) the Commissioner continued in this advisory role, though this time it was the newly formed Scottish Water that he would advise. The advisory role in itself was an influential role,. Since the Water Services (Scotland) Act (2005) this influence has been increased due to the act giving statutory powers to the newly formed six person commission to set the budget for the capital investment programme. That is to be implemented by Scottish Water. This has effectively transferred a great deal of power to shape the future of water provision in Scotland from Parliament to the WICS. In contrast, arguably, to the founding principles of the Scottish Parliament of accountability, openness, transparency and bringing parliament closer to the people. Moreover, it is a retreat from the cross-sector/society representation that the water authority boards had prior to the formation of Scottish Water in 2002. .


Neoliberal ideologues

Some of the members of the commission have links with right-wing free-market think tanks and institutes. These links are with organisations who advocate competition and free-market principles in every sphere of society, including water. The members of the WIC come from a similar background: which is rooted in economics and/or the private sector, either in the water industry itself or elsewhere. However, having the Commission made up of economists with an expert knowledge of the water industry is in line with recommendations by the Better Regulation Task Force (BRT), a government appointed body made up of business people. They said in 2001 that: ‘The boards of regulatory bodies should include both executive and non-executive members. They should be appointed for their expertise rather than to represent stakeholder groups’[1]

The Executive, the Parliament and the Environment and Rural Affairs Committee in their scrutiny of the Water Services (Scotland) act (2005) supported this view when they voted for the change from a commissioner to a commission. There are concerns that the absence of stakeholders and the predominance of experts, namely economic experts with a neo-liberal ideology, may well make the regulator unresponsive to the needs of customers. It is also worth asking if having a tight coterie of experts from a similar simply entrenches homogeneity within the process and in effect is just the same as having only one commissioner. Further, there is genuine concern that the WIC may use their powerful position in the regulatory framework to shape an industry ripe for private takeover. Whilst the WIC may say that it is independent of the Executive, their backgrounds suggest that they are instinctively sympathetic to a marketised water industry. Further, and perhaps worryingly, as the chairman is appointed by the Executive, there is concern that the WIC is doing their bidding for the Scottish Executive and acting as a buffer for the Executive on politically controversial matters.

Their view that private competition is more effective and delivers results for customers is no secret. They said in their annual report for instance 'We have a role in facilitating competition in the Scottish Water industry. Competition will promote further efficiency gains and, where practicable, further choice for customers'. This belief in competition and the use of market principles in delivering water in Scotland is a thread running right throughout the Commission's annual report. Alan Sutherland states that 'Competition should bring lower prices and better services'. The report favourably reviews the water industry in England in contrast to Scotland and applauds the Scottish Executive for allowing incentives ‘to encourage good performance by Scottish Water…by linking managerial bonuses to (economic) outperformance of the regulatory contract’.

The WIC is central in the regulatory framework. It also has a pivotal and statutory role in the determination of charges. As described above this has effectively transferred this power to the WIC from the elected parliament. However, should Scottish Water feel aggrieved at the actions of the WIC they cannot appeal to the Scottish Executive, they must do so through the Competition Commission in London. There are serious concerns regarding this, voiced prominently by the STUC during the consultation process.

They said the Competition Commission:

Were simply not qualified to play that role in relation to a public service such as Scottish Water, which has clear political direction in relation to public policy. A political question arises as to whether it is the right for the judgments in relation to the balance between economic efficiency and public policy considerations to be arbitrated by a bunch of economists sitting in London.

It could also be argued that this could also be applied to the WIC, given that they too are economists with no interest in social and environment public policy considerations.

One of the key planks of the arguments for private sector involvement in water in Scotland is to suggest that privatisation has been an almost unqualified success in England and Wales. Indeed the English and Welsh models are often cited by the WIC as models Scotland should strive to emulate. As Alan Sutherland said in 2003.

The industry in England and Wales has proved that it is possible to deliver better service, water quality and environmental compliance for customers, while also making significant improvements in its level of efficiency. There is no reason why Scottish Water should not be able to achieve a similar level of performance for customers here in Scotland and so justify the public sector model for the industry in Scotland.

Alan Alexander, ex Chairman of Scottish Water, in his evidence to the Audit Committee of the Scottish Parliament confirmed the marketised structure of Scottish Water early this year when he gave evidence to the Audit Committee. He said;

It is extremely important to remember that the industry is a public sector industry, but we try to operate within the disciplines and constraints that have been successful in transforming the industry south of the border. Sir Ian knows more about that than anybody’.

Commercialisation of Water In Scotland

The World Bank has cited the reform of water provision in Scotland as a shining example of how to reform or corporatise/commercialise a public utility . Various things have happened in Scotland that helped to propel this process. These have included the use of incentives for high-level management to achieve ‘efficiencies’. These efficiencies have resulted in a 40% reduction of staff. To strive for economic efficiency, which is solely in the gift of the company to achieve, the WICS state that it depends on the organisation's remuneration policy; the organisation's policy regarding use of permanent or temporary employees and improvements in productivity . The implicit suggestion here is to cut wages, hire cheaper temporary staff while increasing their workload.

The Water Services Act (2005) introduced competition for non-domestic customers, this could well be the thin edge of the wedge and lead to further calls for full-scale privatisation. At the very least it could well threaten Scottish Water’s revenue base and lead to a decrease in cross-subsidisation. Introduced on April 1st 2008 Alan Sutherland the WICS Chief Executive said the introduction of choice would benefit businesses of all sizes. He added: "Scotland is leading the world in the introduction of a competitive framework for the water and sewerage sector. "It is a system that has never been tried anywhere else in the world" [1]. This development has contracted billing and customer relations out to, currently, three different companies, as well as an offshoot of Scottish Water: though this may increase in the future. The companies now working in Scotland are Osprey, Satec, Aquavitae, and Scottish Water-owned Scottish Water Business Stream.


The commercialisation of Scottish Water has also been shown through the huge increase in the use of the private sector. Most recently this has manifested itself through Scottish Water Solutions (SWS): a joint venture between Scottish Water and two consortiums of private companies. SWS now carry out all of the capital investment work as part of the Quality and Standards (Q&S) programme of improving infrastructure. The capacity for Scottish Water to carry out this work has been cut and there is a fundamental reliance on the private sector to carry out this work. There are also over 20 Private Finance Initiative (PFI) contracts in Scotland operating treatment plants all over Scotland. They are exclusively run and managed by the Private Sector.

The Water Industry Commission for Scotland (WICS) is the economic regulator of water in Scotland. It is a non-departmental public body appointed by the Scottish Executive The WICS is made up of a Chief Executive, Alan Sutherland, a Chairman, Sir Ian Byatt and four other members. The remit of the WICS is to set budgets for Scottish Water to deliver the Ministerial Objectives. Their statutory duty is to ensure lowest financial cost for the customers of Scottish Water, whilst still ensuring that the Ministerial Objectives set for Scottish Water, by Scottish Executive Ministers, are achieved. This is a balancing act that places on them a great deal of influence. Their influence can, and indeed has, led to tensions between different actors within the sector of water in Scotland.

The Commission

  • Ian Byatt was Director General of the Office of Water Services (Ofwat) between 1989 and 2000. In that role he was responsible for independent economic regulation of the water companies in England & Wales. From 1978 to 1989 he served in HM Treasury as Deputy Chief Economic Adviser. Since 2000 he has advised the World Bank and governments around the world on matters relating to the water industry. Sir Ian, who was an adviser to the Water Industry Commissioner from 2002, was knighted in 2000.
  • Professor John K Baynard OBE. Professor Banyard is a chartered engineer who retired in December 2004 as an Executive Director of Severn Trent Plc following a career in the water industry.
  • Dr Mike Brooker Dr Brooker is a scientist who recently retired as Chief Executive of Welsh Water following a career in the water industry in Wales. During his career he was Chief Scientist and subsequently Divisional Operations Director of Welsh Water before becoming Managing Director in 1996.
  • Alan Sutherland, Chief Executive. Sutherland was the Water Industry Commissioner from November 1999, when the position was created. During that time, he developed a framework for economic regulation of Scottish Water. He has extensive experience in management consultancy andin the investment banking industry, being a former management consultant with Bain and Company and before that a Manager with Robert Fleming and Company. More recently he was a Managing Director of Wolverine CIS Ltd, a division of Wolverine World Wide.
  • Charles Coulthard Coulthard retired recently as Managing Director of Ofgem (the Gas and Electricity regulator) in Scotland. He served as Deputy Director of the Office for the Regulation of Electricity and Gas in Northern Ireland between 1992 and 1999. He is also currently the Chair of the Gas and Electricity Consumers Council in Scotland.

Source, WIC annual report 2006

Lobbying and PR activities

Agencies retained:

FOI

Notes

  1. ^ Better Regulation Taskforce,'Economic regulators', 2001,

References

    1. ↑ BBC Business gets water supply choice, accessed 8th April 2008.
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